1. Evaluating debt relief: challenges and results EADI/DSA Conference York, 19-22 September 2011 Geske Dijkstra Erasmus University Rotterdam dijkstra@fsw.eur.nl

2. Most debt relief is ODA

3. Measuring the fffect of debt relief on growth: overview Comparison of methods: –Theory-based evaluation –Econometrics Strengths and weaknesses of methods Comparison of results Conclusion

4. What is debt relief? Relief on sovereign debts provided by official creditors: On debt service (flows) or on debt stocks Rescheduling versus cancellation Type of creditor: –Bilateral: aid loans or export credits (commercial) –Multilateral –Private

5. Theory A high debt may affect growth through: –A large and (partly) not serviced debt stock, leading to a debt overhang that hampers capital inflows, investment, and incentives for policy reforms –A large flow of debt service payments that reduces government physical and social investment

6. Debt overhang: The debt Laffer curve

7. growthEconomicImpact Flow effects: government investment Stock effects: creditworthiness, private investment Outcomes Policy changeIncrease in flow of resources Reduction of debt stock Outputs Policy conditions modalitiesDifferentInputs ConditionalityFlowStock Theory-based evaluation

8. Examples Dijkstra 2008: Evaluation of debt relief to 8 countries 1990-1999: –Bolivia, Jamaica, Nicaragua, Peru –Mozambique, Tanzania, Uganda, Zambia IOB 2010 Evaluation of 2005 debt relief to Nigeria

9. Econometrics Depetris Chauvin and Kraaij 2005, Presbitero 2009 NPV debt reduction as result of forgiveness and concessional reschedulings 62 LICs 1989-2003, 2006 Effect on growth, government spending, investment, Difference-in-difference Johansson 2010 NPV debt reduction plus market value of debt reduction, stock and flow effect Panel of 118 countries 1989-2004 Effect on growth, investment Standard growth regression with GMM

10. Criteria for comparison of methods Validity of debt relief measures Validity of causal relationship: attribution Potential for assessing channel of influence External validity

11. CriterionTheory-based evaluation Econometrics Validity of measuring DR GoodLimited Attribution Impact via theory; outputs better than outcomes Good but robust results difficult due to small impact Channel of influence GoodGood for stock; limited for flow and conditionality External validity Limited, better with many case studies Good

12. Comparison of results StockFlowConditionalityGrowth Bolivia++0+ Jamaica++0+ Nicaragua0000 Peru++00+ Mozambique0000 TanzaniaO000 UgandaO000 ZambiaO000 2005 Nigeria+0+++ Depetris00NA, +0 Presbitero0NA 0 Johansson00NA0

13. Conclusions Strengths theory-based evaluation: measuring debt relief, effect of different modalities, channels of influence Strengths econometrics: attribution, external validity Results are similar: limited effects